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A CO2-EOR regulatory update from the US

Philip Marston

Insights

A CO2-EOR regulatory update from the US

Published: 17 Feb 2014

The year 2013 was eventful for those following changes in the regulatory framework for CCS in the United States, and in particular in the role that CO2-based Enhanced Oil Recovery (EOR) may – or may not – be able to play. The coming year promises further changes as the Environmental Protection Agency (EPA) moves ahead with several major regulatory initiatives. While the EPA clearly intends to facilitate the ability of EOR operations to receive and store captured, anthropogenic CO2 (or 'A-CO2') in standard EOR operations, there is a real risk that its recent moves may have the opposite effect, and lead EOR operators to avoid integrating new supplies of A-CO2 into existing infrastructure and operations.

The recent EPA initiatives are identified in the table below.

Issuance

Nature of action

Next steps

NSPS: CO2 EMISSION PERFORMANCE STANDARD

Proposed rule to set CO2 emission standard for newly-constructed power plants, based on expected deployment of carbon capture followed by sale of the captured CO2 to EOR operators for use and storage during Class II EOR operations

Final rule under waste legislation (Resource Conservation and Recovery Act or 'RCRA') that excludes from the definition of 'hazardous waste' certain CO2 streams sent by an emitter for waste disposal in Class VI facility

Final rule

Published at 79 Fed. Reg. 350 (January 3, 2014)

Effective date: March 4, 2014

Each of these initiatives introduces risks and uncertainties for any EOR operator that is contemplating relying in the future on A-CO2 supplies.

NSPS: a proposed CO2 emission standard for new power plants

On January 3, 2014, the EPA formally proposed a rule (previously announced in September) that would for the first time set a CO2 emission performance standard for new power plants, with separate thresholds proposed for natural gas-fired and for coal-fired plants. The proposed standard would apply only to power plants whose construction ‘commenced’ after the January 3, 2014 date (although the term 'commenced' is defined so that certain projects with contracts in place before that date may potentially not be subject to the new standard). The EPA has proposed an emission standard for coal-fired power plants of 1100 pounds of CO2 per MWh. EPA believes that this threshold would effectively require new coal-fired plants to deploy at least ‘partial’ capture technology, which is to say technology that would capture less than 90 percent of the emission and result in a facility that would emit on the order of 30 to 50 percent less CO2 than a coal-fired unit without CCS (see 79 Fed. Reg. at 1436).

As EPA explained in the proposed rule, it is intended to 'encourage greater use, development, and refinement of CCS technologies,' 79 Fed. Reg. at 1436. Moreover, EPA stressed that it wished to encourage the use of captured CO2 in EOR operations 'since the practice makes CCS itself more economic and thus promotes use of the technology on which the proposed standard is based.' Id at 1484.

Accordingly, for purposes of calculating compliance with the emissions standard, the proposed rule would allow an emitter to subtract the quantities of CO2 captured and sent for use in routine EOR operations, but only if the EOR operator reports the injections under Subpart RR of the EPA's greenhouse gas reporting rules.

Although the public comment period extends to March 10, questions have already been raised with regard to several aspects of the proposed rule, including whether the proposed rule has improperly relied on the experience of certain publicly-funded demonstration projects as grounds for concluding that CCS technology has been 'adequately demonstrated' (a finding that is required under the governing legislation). There is also debate over the EPA’s proposal to require injection reporting under an unused portion of its greenhouse gas reporting rules (known as 'Subpart RR') instead of allowing injections reported under the 'Subpart UU' rules to qualify as well. To date, all CO2 injections for EOR operations have been made under Subpart UU (running in excess of 60 million-plus tons per year) because the operators view the Subpart RR option as uncertain, costly, and unworkable.

The Draft Guidance defining the boundary between Class II and Class VI wells

The EPA has also now published its Draft Guidance for the potential transition of wells from injection (and incidental storage) of CO2 during routine EOR operations to injections for the 'primary purpose' of geologic storage where there is an increased risk to underground sources of drinking water as compared to traditional EOR operations. Injections during EOR operations are authorized under Class II of the Underground Injection Control Program through over 7,000 or more active injection wells. Injections for the purpose of geologic storage would be authorized on an individual well-by-well basis under the new Class VI rules. While there are about a half-dozen applications for a Class VI that have been filed over the last several years in conjunction with proposed demonstration projects, the EPA has not yet issued a Class VI permit.

Comments on the Draft Guidance are due by March 10, 2014 and a final Guidance document is likely to be completed by the end of 2014.

Key differences between Class II and Class VI

The Draft Guidance accurately defines key differences between the Class II and Class VI storage operations. It notes explicitly (at 1) that ' ... traditional EOR projects are not affected by the Class VI rulemaking and will continue to be permitted under Class II requirements.' The document does not formally classify the different types of storage, for example, as 'incidental' or 'incremental' (as was done at pp. 106-109 of Bridging the Gap: an analysis and comparison of legal and regulatory frameworks for CO2–EOR and CO2–CCS). However, the Draft Guidance adopts a similar analysis and discusses four different injection/storage scenarios, describing how a pressure equilibrium is typically maintained in Class II EOR operations between the quantity of CO2 injected in the formation and the quantity of fluids withdrawn (oil, brine, and recycled CO2). See pp. 21-23 (Box 1) and Figure 6, showing the respective pressure changes under different operational scenarios. [1] Where CO2 injection rates and fluid production rates are equal, a pressure equilibrium is maintained in the subsurface and there is no increased risk of native fluids migrating into overlying drinking water sources. Under those circumstances, operations remain under Class II.

In storage scenarios where there is a sustained increase in the CO2 injection rate in excess of the fluid extraction rate, however, the subsurface pressure would normally increase and this would be an important factor in determining whether the operation should transition from Class II to Class VI. What is relevant for the pressure balance is not a comparison between CO2 injections and petroleum production, but rather the balance between injection rate for all injected fluids (which may include water as well as CO2 in a Water-Alternating-Gas technique) and all extracted fluids (which include water, petroleum and CO2).

There are certainly various other important issues that will be raised in the public comments, including the jurisdictional and operational relationship among the relevant regulatory agencies administering the Class II and Class VI program. But the portions of the Draft Guidance that shed light on the underlying substantive dividing line between Class II and Class VI operations will assist industry in understanding and complying with the rules.

Conversion of CO2 in Class VI operations to a 'solid waste' under federal waste legislation and the conditional exclusion

The third major initiative of the EPA is the final rule issued under the federal waste disposal legislation (known as 'RCRA', for the 'Resource Conservation and Recovery Act'), with an effective date of March 4, 2014. In that ruling, the EPA dismissed multiple comments from industry that cautioned against declaring a captured gas to be a ‘solid waste’ under RCRA, and ruled that where an emitter makes a decision to capture a CO2 gas and to compress and send it for permanent geological disposal via a Class VI well, the CO2 gas becomes 'other discarded material' within the meaning of the statute's definition of 'solid waste'. In EPA's view, that means that the gas becomes a 'solid waste' because of the intention of the emitter to discard it via a Class VI well. EPA then created a 'conditional exclusion' from the statute where the discarded CO2 will be injected in a Class VI well and maintained in accordance with the Class VI rules. The EPA took the action in order to encourage CCS development and deployment.

Raising questions

While the EPA apparently believed that this approach would facilitate deployment of CCS technology, the new rule tends to raise more questions than it answers. By dismissing its long-standing precedents that an uncontainerized gas is not a 'solid waste', the rule inserts uncertainty in what had been long-settled law.

Taken at face value, it essentially converts a gas or fluid into a jurisdictional 'solid' waste because of the mental state of the person handling the substance – i.e. the decision to discard it in a Class VI disposal well. By making the jurisdictional reach of the statute depend on intent rather than the physical characteristics of the substance at issue, this interpretation creates further uncertainty. For example, would not that logic allow EPA to classify bovine flatulence (with a high degree of CH4) as a solid waste where a feed lot operator intends to allow the gas to be discarded in the atmosphere? Indeed would that reasoning not also imply that a power plant operator would be subject to RCRA if it discards CO2 in the atmosphere without even bothering to capture it? In short, the rule pushes the statutory envelope at least to its outer bounds, if not well beyond, and is not likely to advance the EPA's stated objectives.

The debate continues

While all these issues are likely to be discussed in detail in public comments submitted in March of this year, it is already clear that the ability of EOR operators to accept new supplies of captured A-CO2 into EOR operations may depend to a large degree on whether the EPA will be able to make the necessary mid-course adjustments to its proposed approach.

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